Senate Democrats move to raise taxes on upper-income earners

posted at 4:41 pm on July 16, 2012 by Dustin Siggins

On Friday evening Politicoreported a tax package intended to keep the Bush tax policies in place for individuals making less than $200,000 annually and couples making $250,000 annually — in addition to patching the Alternative Minimum Tax for one year — is making its way around Capitol Hill. From the article:

The 20-page draft Democratic proposal obtained by POLITICO includes these provisions: a 20 percent capital gains rate on those earning more than $200,000, couples over $250,000; a 20 percent dividend rate on those earning more than $200,000, couples over $250,000; estate taxes would apply to estates worth more than $3.5 million with a maximum rate up to 45 percent; extensions of the American Opportunity Tax Credit for college standouts, as well as an expanded child tax credit and Earned Income Tax Credit for poorer Americans; and a one-year patch for the alternative minimum tax.

None of this is unexpected, but the plan has run into four problems. First, at least two Senate Democrats are standing against the plan:

Sens. James Webb (D-Va.) and Joe Lieberman (I-Conn.) have already publicly stated that they will not support the Obama-Democratic leadership position.

Democratic sources say that two embattled Democratic incumbents, Jon Tester (Mont.) and Claire McCaskill (Mo.), will likely back the plan. Another concern for Reid will be Sens. Maria Cantwell (D-Wash.) and Mark Warner (D-Va.). With only 53 Democrats — and Reid calling for a straight majority vote for any tax proposal — Democratic leaders cannot afford to lose any support.

Back in June it was reported that as many as seven Senate Democrats were hesitant to support this kind of proposal as a stand-alone piece of legislation. I wrote that Republicans should take advantage of this hesitation to immediately call the bluff of Democrats who want to raise taxes on the wealthy. Even with only a few Democrats potentially not backing the plan, this gives Republicans a great deal of strength in coming negotiations.

Second, Democrats keep claiming raising taxes on upper-income earners is critical to help close the gargantuan deficits garnered since 2009. Eliminating the Bush tax policies for upper-income earners would raise just over $800 billion over ten years. Using Congressional Budget Office’s (CBO) expectations on spending over the next decade, that’s a maximum of 1.88% of what we’ll spend over that same time period. Yet, to use the CBO’s static method of tax analysis, the Democratic plan would “cost” $272 billion over one year, over three times what raising taxes on the wealthy would raise. Which, of course, explains why Democrats insist the plan not be considered under PAYGO rules:

The legislation also states “that the budgetary effects will not be entered on the PAYGO scorecard,” meaning its impact on the deficit will not derail the legislation. Tax experts said that Reid and other Democratic leaders fear that going for an even more costly bill could cost them support.

Third, barring a flinch by Speaker Boehner (R-OH), this plan has zero chance of making its way through the House of Representatives. Yet Politico says Reid may want a vote as soon as next week on the legislation — clearly showing the Democrats are gambling voters will support raising taxes on upper-income earners as we go into the August recess and the major push by campaigns before November. While this pseudo-campaigning is going on, however, Reid has ignored his chamber’s lawful duty to pass a budget for the federal government for the third year in a row.

Reid’s abdication of responsibility is the fourth difficulty facing the plan: the 2012 fiscal year runs out in two months and 14 days. The Bush tax policies run out in five months and 15 days. Which means outside of the law, simple math says getting a budget together and passed should be a priority. Which means Republicans have an easy rebuttal to any pressure from Democrats about this plan: let’s have Congress worry about actually doing its job and pass a budget before the end of September. Once that happens, and the military and other important functions of the federal government are funded through the 2013 fiscal year, we can get into the negotiations about taxes.

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

Trackbacks/Pings

Comments

The 20-page draft Democratic proposal obtained by POLITICO includes these provisions: a 20 percent capital gains rate on those earning more than $200,000, couples over $250,000; a 20 percent dividend rate on those earning more than $200,000, couples over $250,000; estate taxes would apply to estates worth more than $3.5 million with a maximum rate up to 45 percent; extensions of the American Opportunity Tax Credit for college standouts, as well as an expanded child tax credit and Earned Income Tax Credit for poorer Americans; and a one-year patch for the alternative minimum tax.

This will absolutely slam the brakes HARD on the economy. People invest money in order to make a capital gain. Capital gains are treated favorably in order to encourage people to make those investments. Poor people don’t build factories, rich people do. Fewer of them will do so with these tax rates.

Well dingy dong harry, if you had bothered to bring up a budget in the last three years that has been passed in the house sitting on your desk, you might have a point? The d’s are playing chicken with the r’s and by golly r’s do not cave, please! For once in your life r’s in the sentate, think what you ARE doing? It will be on the d’s not you?
L

Isn’t this supposed to originate in the House? Didn’t we just go through this with the ObamaCare ruling? Wasn’t that why the dissent was so angry about Roberts changing this into a tax, because tax hikes are supposed to come from the House as its members are elected every two years, thus being more directly accountable to voters?

My God, do we live in a land governmned by the Rule of Law or have we become a Banana Republc?

It’s about time for the Republicans to call their bluff. This is what elections are all about so just tell Harry and the troops that they’ve had 3 years to submit a budget with their tax proposals and they’ve refused so we’ll see what the electorate thinks about this and move on. The Democrats have been pulling this stuff since Obama got into office and I believe the public is going to be amazed at the extra spending they’ve hidden in the past 3 years because they’ve passed everything by continuing resolution.

The House should simply vote to extend all the tax cuts. This undermines the narrative that the GOP is holding the middle class hostage. The GOP WANTS to keep these tax cuts, it’s the Democrats holding them hostage because they want to repeal the cuts for the top 2%.

This will absolutely slam the brakes HARD on the economy. People invest money in order to make a capital gain. Capital gains are treated favorably in order to encourage people to make those investments. Poor people don’t build factories, rich people do. Fewer of them will do so with these tax rates.

crosspatch on July 16, 2012 at 4:46 PM

Isn’t money that is invested after tax to begin with? Then whatever gain is made is taxed again at the cap rate?

Now let the Republicans defend tax cuts for the rich while denying tax cuts for the average Americans.
This is absolutely a losing position for the Republicans. Can you imagine one of those Republicans in swing states and districts defending the wealthy while blocking the middle class tax cuts because the rich are being taxed 4% more!!

I’m in complete favor of letting all the tax packages expire, better to pay the piper then keep on borrowing. Paying your bills sucks, but defaulting on your debt sucks a lot more.
Zekecorlain on July 16, 2012 at 5:23 PM

Speak for yourself. They aren’t my bills. And you’re opporating under the assumption that the revenues raised by these tax hikes will go towards the debt. Even if they did, it’s not enough. They have a spending problem. NOT a revenue problem.

Now let the Republicans defend tax cuts for the rich while denying tax cuts for the average Americans.
This is absolutely a losing position for the Republicans. Can you imagine one of those Republicans in swing states and districts defending the wealthy while blocking the middle class tax cuts because the rich are being taxed 4% more!!

Salahuddin on July 16, 2012 at 5:22 PM

Sadly for you, the part of the country who would cheer Reid on, are the same people who are too lazy to get off their butts to work, let alone march in support.

Now let the Republicans defend tax cuts for the rich while denying tax cuts for the average Americans.
This is absolutely a losing position for the Republicans. Can you imagine one of those Republicans in swing states and districts defending the wealthy while blocking the middle class tax cuts because the rich are being taxed 4% more!!

Salahuddin on July 16, 2012 at 5:22 PM

You either forgot the /sarc tag, or you’re a total nitwit.

How about we let the Democrats defend the fact that 47% of Americans are paying no taxes at all, while the other (roughly half) carries the burden?

WASHINGTON — A majority of Americans want the Bush tax cuts extended for everyone, despite a strong push by President Barack Obama to eliminate them on higher incomes, according to a new McClatchy-Marist poll.

The lunatic-left d-cRAT socialists are proceeding on TAX INCREASES with the same idiocy dingbat pelosi applied to OBOZOCARE / OBOZOTAX: “If we pass it, Americans will love it.”

@jawkneemusic so we shouldn’t pay our debts because we can’t be assured that we will pay our debt? If you’re a US citizen their your bill just like if your from Laos and the previous gov’t ran up a debt it’s still yours.

@jawkneemusic so we shouldn’t pay our debts because we can’t be assured that we will pay our debt? If you’re a US citizen their your bill just like if your from Laos and the previous gov’t ran up a debt it’s still yours.
Zekecorlain on July 16, 2012 at 5:43 PM

I have never voted for a big spending politician. So NO they’re not my bills. If you think handing these people more of our money to “pay down the debt” is really what needs to happen, the IRS takes donations. Feel free to “pay your bills”.

Consitiutionally, all revenue bills must originate in the House. I know that dingy harry got areound this by using an old passed house measure, gutting it, and using the same number – Typical for the constitutional abuse of the marxist/dhims. Does anybody know the bill number and the whole story?

Romney needs to start proclaiming that, if this congress raises taxes or lets tax cut expire, he will insist that the next congress undo any such action or inaction retroactively to January 1st.
Laurence on July 16, 2012 at 6:07 PM

The worst deficit of the R-R-R House-Senate-Presidency was FY 2004, whenTotal Receipts were 1.88 Trillion,Total Outlays were 2.29 Trillion,
and Total Deficit was 0.41 Trillion

The second part of the Bush Tax Cuts were signed in 2003, and Revenues went UP, not down, but spending under the D-D-D House-Senate-Presidency skyrocketed and by FY 2009,Total Receipts were 2.10 Trillion,Total Outlays were 3.51 Trillion,
and Total Deficit was 1.41 Trillion

In FY 2009, the Democrat majority produced the worst deficit in the history of this nation … more than 3 times the size (nearly 3.5 times the size) of the worst deficit of the Republican-majority years, FY 2004.

And while the Democrats want to blame deficits on the Bush Tax Cuts, the Bush Tax Cuts actually INCREASED revenue, and the FY 2009 deficit wasn’t the result of lower revenues (which were 12% larger than FY 2004 revenues 5 years earlier). the FY 2009 deficit was the result of spending that was 53% larger than it had been just 5 years earlier!

That outrageous explosion of deficit spending, done by the Democrat majority, led to a FY 2009 deficit that was more than triple the largest deficit of the Republican majority years!

Eliminating the Bush tax policies for upper-income earners would raise just over $800 billion over ten years.

That is not true.The Bush Tax Cuts led to higher employment and higher revenues, so it’s logical and easy to understand that the Obama Tax Increases will not “raise” revenues at all, but rather lead to LOWER revenues, due to more jobs lost!

The 2003 Bush Tax Cuts increased employment and increased revenues.
The 2012 Obama Tax Increases would lead to lower employment and lower revenues.

Reid is going to force a vote that will definitely hurt Tester, McCaskill, Manchin, and Nelson (FL). It could hurt Casey and Brown as well. It will also give the Republicans more ammo to use in the open races in Nebraska, North Dakota, and Virginia.

All of these people are going to fall on their swords to give Obama an ineffectual talking point? It’s just phenomenally stupid.